APM Presents - Why Value Management might reveal just what managing projects are really about!

Why ‘Value Management’ might just reveal what

managing projects is all about!PM in Practice Oct 2014

JOHN HEATHCOTE & ADAM ROBERT – OCT 2014

INTRODUCTION

 Adam Roberts - Project Manager London Underground(MAPM MSc) Full member of the APM

Committee member of the APM VM SiGFinal year of MSc. Strategic Project

Management

John Heathcote – Senior Lecturer Leeds Beckett University(MBA MAPM HEA Senior Fellow) Full member of the APM

Chairman of the APM VM SiG

ANALYSING

• Combines functions with Value based techniques• Function Analysis• Function Cost Analysis

• Understanding of Requirements- Source: APM BoK 6th Edition

WHAT IS VALUE?

V (Value) ∝ B (Benefits + Requirements) / £ (Cost)– OGC (2010)

“Value increases when the satisfaction of the customers needs augments and the expenditure of resource diminishes”

– Source: Robert Tassinari (1995)

BALANCE

• Value is a balance of:• Risk• Resources• Quality

• Detailed requirements ∝ Objective / Subjective process

“Truly successful Project Managers understand that Projects exist only to promote and Benefit the organisation at large”

- Source: John C Goodpasture (Managing projects for Value)

DEFINITION OF VALUE?

“All cost is for function” - Lawrence D Miles (1904 – 1985)

“A measure of how well an organisation, project, product, or service, satisfies stakeholders’ objectives in relation to the resources consumed” 

- Source: EN1325 - 1

WHAT IS VALUE MANAGEMENT?

“Value Management is the name given to a process in which the functional benefits of a project are made explicit and appraised consistent with a Value system determined by the client”

– Source: Kelly. J et al (2004)Value Management of Construction Projects

DEFINITION OF VM- (EN 12 973)

 “Value Management is a style of Management,

particularly dedicated to motivate people, develop skills and promote synergies and innovation, with the aim of maximising the overall performance of an organisation”

- Source: (EN12973)

DEFINITION OF VM - IVM

  “The Institute of Value Management define Value

Management as a structured team based approach to identify functional requirements of Projects and / or contracts to achieve Optimum Function for Minimum Cost”

- Source: Institute for Value Management website

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What is Value Management (VM)?

VM might be described as: “as a process or methodology which has been developed and adapted for the better selection and design of better value outcomes for projects.” source: Author

“It might have particular high value to Project management in general if it becomes a way of thinking about projects, a ‘value’ perspective rather than a ‘transactional’ perspective of projects” source: Author

Originally (Like many PM techniques, aimed at manufacturing .. It has latterly been applied, (by ICE, who provided a structured guidance about how it might be applied to projects) to projects. ....

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Value Engineering’s roots at General Electric

Value engineering began at General Electric Co. during World War II.

Because of the war, there were shortages of skilled labour, raw materials, and component parts. Lawrence Miles, Jerry Leftow, and Harry Erlicher at G.E. looked for acceptable substitutes.

They noticed that these substitutions often reduced costs, improved product, or both. What started out as an accident of necessity was turned into a systematic process.

They called their technique "value analysis".

Source: http://en.wikipedia.org/wiki/Value_engineering

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What is Value?

So if this is a process about arriving at more/optimum ‘value’, first we should decide what value is.....

The APM VM SiG summarises this debate by reducing ‘value’ to: V = Benefits/Cost

Previous APM BoKs have described value as.....V = Stakeholder satisfaction/cost of resources

andValue = Benefits &Key Stakeholder requirements/ resources used

We have a preference for the V = Benefits/£ as later we will describe how stakeholder interests, whilst important can represent a distraction, in some instances, from a value focus.

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APM BoK 6th Ed

In this 2012 BoK edition, value management is seen as a sub-set of ‘requirements planning’.

This is because the notion of value is sometimes related to the idea of accurately specifying the functional requirements of a project.

And greater functionality / cost is increased value.So this is a similar viewpoint... And ..

A critical difference that the VM SiG would like to point out, is this keeps projects within a “transactional” perspective, and the SiG believe project management might be better serves by moving to a “value” perspective.

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So VM tends to concern itself with the PM processes that are the most likely to have a

significant influence on the project’s delivery of value..

They are:Problem definition (Brief)Solution generation/selection (Definition)Business/investment case

A VM-type process has the potential to make a disproportional positive influence on the project’s value proposition, is because it will likely influence these three aspects of the project positively.

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Problem definition/BriefSeveral writers on managing projects,

mention the idea that a project should solve a problem. (Kerzner; OU; Gardiner; Noguiera 2010)

Nogueira (2010) placed great emphasis on this aspect of the project. Projects should be about solving problems*, and those problems should be clearly and carefully defined... Before the solution is arrived at.

This idea of projects as solving carefully defined problems currently (2013) remains a generally overlooked aspect.

It is critical to the VM process, & to projects in general that the ‘problem’ is defined. This defining of the problem, might result in:

the project being abandoned, because, on analysis, there’s not really an issue to be addressed;

or that the the original proposal for the project is radically re-defined.

Certainly ‘problem definition’ should lead to deeper understanding of the issue/problem that is being addressed.

This single aspect of project management is the one which, being at is it, at the start of the project, has most potential impact on value..

Root cause analysis is an important feature of problem definition and one of the techniques used to assist in defining the problem, as is the Ishikawa or fishbone diagram.

* An opportunity is defined by Nogueira as also being a problem.

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Contemporary flaws with Problem definition/Brief 2

This problem part of the VM process works, because tragically so few projects proceed without a clear problem start, beginning instead with an assumed solution, or a preferred solution, coming out of a strategic planning process, or based on too many assumptions. Or, commonly, simply because a budget exists and something ought to be done.

Of course contractors simply carry out the specifications in the contract, assuming the client knows what they want, although research at Leeds Metropolitan University (Bleier & Heathcote 2009) demonstrates contractors believe this is a significant problem that prevents them assisting their clients in delivering more value.

Some project areas, (such as public health in the UK) have highly defined ‘problems’, they are able to predict where general health problems are and so develop responses to prevent issues developing, such as smoking cessation.

Modern policing is similar, ‘intelligent policing’ for instance allows the UK police force to also target known problems and so use their resources more effectively.

Both areas have brought about rapid improvements in recent times (Ref)

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Solution generation/selection (Definition)

Once the problem has been defined an ‘optimal’ solution can be sought.VM facilitators will deliberately separate the problem definition work in a team VM

workshop process to prevent the most common logic error (the availability error), this might be best illustrated by explaining the VM SiG’s ‘first good idea error’.

The first good idea error, is made when the project team goes with the first reasonable idea they come up with, rather than spending any time or any deliberate process to seek a more optimum solution.

Edward DeBono (1971) highlighted this problem in organisational decision making and coined the term ‘lateral thinking’ seeking to better equip people to be more creative in their decision making by seeking other, better alternatives, by:

- Creating more options, to choose from;- Thinking beyond ‘tried & tested’ solutions or the typical solution (he called this

pattern breaking), - Or, critically for project management scenarios, the solution that came with the

project brief!

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Contemporary flaws withSolution generation/selection (Definition) 2

This problem part of the VM process works, because tragically so few projects proceed without any thought been given to what a better solution might be.

Several factors conspire to prevent even a scant search for another alternative:- Suspending judgement is difficult in non-facilitated meetings, options are too readily

evaluated thereby curtailing the search for other solutions.- A ‘good’ solution might seem obvious. So going with that is socially easy on the team

process. (And objecting is likely to be seen as too challenging in to the group’s coherence).- The project brief, once allocated to the PM is likely to be described by the anticipated

solution, i.e. “The Millenium Dome” ..that describes the project as a solution, but determining the solution it is addressing is much harder. Reviewing and changing the project as it is handed to the PM might be seen as a challenge to management decision making. And so difficult to do in some organisational cultures.

- A tired & tested technical solution might be ‘known’ by the technical ‘experts’ in the team, for instance Civil Engineers tend to think of Civil Engineering solutions, & IT Engineers, IT ones, often to the same problems. Moving away from a known solution presented by the technical expert is likely to be perceived as risky!- Examining this further IT programmers frequently report the client fails to understand the problem well

enough to allow the solution to be designed, though all proceed from the assumption IT will be the answer, usually an IT solution also requires a business process redesign too.

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Business/investment case

To properly develop the carefully selected solution, it should be p[resented in terms of ‘objective criteria’ Ury & Fisher (1999) suggested problems & solutions should be presented using ‘objective criteria’, that’s to say measurable criteria that allow the Business case to be measured, monitored and evaluated later on, (See link with Benefits Realisation)

For instance measurable criteria might include: – Anticipated increase in sales;– New revenue;– Increased performance;– Reduced operational costs;– Improved market share;– Greater no.s treated, compared to pre-project.

What is should NOT be, are un-measurable claims, such as:– To improve the reputation of the company/org;– Because a stakeholder/manager will be ‘pleased’ with it;– It meets a policy directive, (It might do, but demonstrate a measurable value too!)

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Contemporary flaws withBusiness/Investment Case 2

Benefits & their costs have RISKS...– Each business case should reveal the risk s associated with the

promised benefits, for instance:• Each benefit should have a minimum & maximum expectation;• Each cost associated with each benefit should also show how

reliable that estimate is.

Project business cases in recent times (Gray report; Flyvberg) have demonstrated a remarkable capacity to

exaggerate their benefits, while underestimating risk. A ‘Conspiracy of Optimism’ (Gray report 2009)

http://www.bipsolutions.com/docstore/ReviewAcquisitionGrayreport.pdf

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The [facilitated] Team

Much of the VM process outlined in this shortened presentation identifies critical parts of the early project lifecycle to illustrate the thinking required to make VM be a positive influence on projects.

It is largely presented as better decision making, deciding on the problem first before looking at solutions, thinking about other alternative solutions and using objective measurable criteria to present the ‘value case’.

To support that better decision making VM-type processes advise using a team approach (so more information is available), a workshop, and a facilitator who facilitates the rational decision making process (and doesn’t get involved in the detail).

So VM-type processes tend to be focussed around team working, workshops, lasting 1 or 2 days typically. (Often perceived as expensive, but these are minimal costs compared to most VM outcomes.)

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The [facilitated] Team: The ‘Job Plan’

Here’s a simple outline of a team workshop process:

1. Present the Information we have. (Info Phase);2. Define the problem;3. Generate options for solution;4. Evaluate the options (using risk and objective criteria for

defining benefits);

5. Make a recommendation... Supported by a business case

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When VM/VE is flawed?In the VM SiG’s road show tours to APM UK branches repeating themes

reoccur from APM members:As a process many people who have a good faciLove it or Hate it... litated

workshop experience become converts! However the processes are (abused?) in some instances to simply reduce project costs to fit within an assigned budget perhaps, in such cases value is stripped out of the project faster than cost and leaves a sour taste in the APM member.

A good deal of criticism is aimed at the cost cutting use of VE. While reducing cost can add value, functionality or benefit should be protected and the chief concern of the team.

Mentioned earlier where:- Exaggerated business case benefits; Risk should accompany estimates

to demonstrate to decision makers the reality of the situation.- Benefits realisation processes will help with this, to ensure there’s

audit of the business case promises.

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Concluding short guidance to PMs

If you only remember 3 things, about VM remember:

1. If there’s no (defined) problem there’s no project!2. Don’t succumb to the 1st good idea error; have a

longer think, consult..3. Make sure your business case has measurable

objective criteria, so you don’t fool yourself and others!

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Limitations of this presentation version

It’s Just an outline,Tries to demonstrate the ‘thinking’ principles behind Value Management.To do so it leaves out (for later),

Much about the myriad of methodologies that might be utilised: VM, Value Engineering; Value Analysis; Lean; Six Sigma; Waste Stream Mapping; etc.

& it leaves out:details about the important ‘facilitator’ role;How the VM process might be used apart from just at the start of projects;How VM ought to be thought of as an iterative process;Methodologies to support better problem definition;Methodologies associated with option generation, lateral thinking & innovation.

VM SIG WHITE PAPER

• Value Management greatly Enhances Value for Money

• Benefits should not be accepted at any price• There is not always a link between TCQ and

benefits • Value Management / Engineering techniques

creates Value early in the life of a project

- Source: APM VM SiG (Peter Langley)

WHAT VALUE MANAGEMENT IS NOT

Value Management / Engineering / Analysis is definitely NOT a cheapening process!

Reliability and performance should never be sacrificed just for the sake of cutting costs…

SUMMARY

1. If there is no defined Project, then there is no

Project

2. Don’t succumb to the 1st good idea error; have a

longer think, consult.

3. Make sure your Business Case has measurable

Objective Criteria, so you don’t fool yourself and

others!

APM Value Management Specific Interest Group

JoinOr follow the SiG work & eventsAt:

http://www.apm.org.uk/group/apm-value-management-specific-interest-group

This presentation was delivered at an APM event

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